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US CPI and Core CPI growth in October exceeded expectations. The market once again bet on the Fed raising interest rates in December, leading to a decline in US stock futures and a rise in US bond yields.
US consumer prices rose more than expected in Octoberfederal Reserve (Fed) officials are so concernedtrump Inflation, driven by tariffs and the war with Iran, has lasted longer than expected, and inflationary pressures in other areas have been difficult to control. Expectations of the Fed raising interest rates have increased again. Before the market opened on the 10th, the S&P 500 futures index fell and US bond yields rose.
The US Bureau of Labor Statistics announced on the 10th that the overall consumer price index (CPI) increased by 0.4% monthly in October, slower than September, but higher than the market expectation of a monthly increase of 0.3%. Core CPI, which excludes volatile food and energy prices, rose 0.3% monthly, and the market forecast was 0.2%.
There is no annual growth rate of CPI in October. Due to the US government shutdown a year ago, the Bureau of Labor Statistics was unable to collect data and compile a full price index, so there is no comparable data for the same period last year.
In October, fresh food prices increased 0.4% monthly, the largest increase since April, homeowners’ equivalent rent (OER) increased 0.3% monthly, and electricity prices increased 0.9%.
However, Bank of America (BofA) used interpolation data from the same period last year to calculate the comparative base period, estimating that the overall CPI annual growth rate in October was 3.8%, and the core CPI annual growth rate was 2.7%, both 0.1 percentage points higher than September, and well above the Fed’s 2% inflation target.
CME Group’s FedWatch tool shows that the market currently expects an 89.8% chance of a 1-digit rate hike in December and a 10.2% chance of a 2-digit rate hike.
Fed heavyweight Governor Waller on the 10th expressed support for raising interest rates in December and warned that if CPI growth reaches or exceeds 0.3%, the Fed may need to raise interest rates by 2 points at a time. Economists say only a massive stock market selloff or a widening of credit spreads will prevent the Fed from tightening monetary policy in December.
Chicago Fed Chairman Goosby pointed out on the 9th that the current inflation trend has been exceeded by the general impact of supply shocks and tariffs, and the expansion of artificial intelligence (AI) infrastructure by large cloud service providers has accelerated the inflation situation.
“We must take proactive action from the beginning and never let the economy overheat, because once the economy overheats, it will be an extremely painful process to de-heat,” he said. Goolsbee does not have a vote on the Federal Open Market Committee (FOMC) this year, but will next year.
Summary FAQ
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Because the total CPI increased by 0.4% monthly in October and the core CPI increased by 0.3% monthly, both of which were higher than market expectations, indicating that the decline in inflation was not as expected, allowing investors to again raise the possibility of the Fed raising interest rates in December.
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After the data was released, S&P 500 futures fell before the market opened, while US bond yields rose, reflecting market concerns that higher inflation will force the Fed to maintain tightening or even increase interest rate hikes, thereby reducing the stock market’s risk appetite.
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Waller supported raising interest rates in December and said that if CPI growth reaches 0.3% or more, it may be necessary to increase interest rates by 2 points at a time; Goolsby believes that inflation has exceeded the scope of simple supply shocks and needs to be responded to quickly and forcefully.
